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How To Making Money In Retirement: 3 Real Keys

Making Money In Retirement

How To Making Money In Retirement: 3 Real Keys.The talking heads on cable TV shows would have you believe that if you gather the right information quickly enough or time the market just right, you’ll somehow turn your retirement dollars into a never-ending income stream.

While chasing the next big thing in a 24-hour news cycle may seem exciting to some, it seldom works for the average investor who simply wants to make sure they have enough principal and growth in their accounts to live on in retirement.

How To Making Money In Retirement: 3 Real Keys

As a managing partner of a financial and insurance services firm, I’ve found that the real key to making money in retirement isn’t chasing the stock market — it’s “the power of zero.” I don’t mean zero growth; I mean the power of never taking a loss. The power of zero is the power of zero losses.

The power of never taking a loss in down market years might sound like fiction. We’ve been wired to believe that to have sufficient growth, we must take risks.

This is a thought process that is difficult to let go. One of the false long-held beliefs I repeatedly come across is the “either/or” mindset when it comes to risk versus reward for retirement savings. When nearing or in retirement, many people believe they only have two options:

Option 1: Keeping their funds safe in a certificate of deposit or savings account and settling for the low interest rates banks offer that currently do not keep up with inflation.

Option 2: Keeping funds at risk in the market to make returns that beat inflation and hopefully having enough to live on.

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But these aren’t the only options. Over the years, the marketplace has created new financial vehicles that have changed the way we look at risk versus reward in retirement.

How To Making Money In Retirement: 3 Real Keys

I believe the key to making a solid inflation-beating return in retirement isn’t in taking big risks with your hard-earned nest egg, but in eliminating potential losses.

Earning market-like returns while at the same time eliminating any loss of principal can help make your money last in retirement. These strategies exist in vehicles that are provided by insurance companies and that index or mirror the market’s growth only; when the market corrects or crashes, your principal and growth stay intact.

This is possible through fixed indexed annuity policies, which allow you to participate in the growth of an index (such as the S&P 500 or NASDAQ Composite) without the risk of losing your principal. These policies include a no-loss guarantee that protects your funds from market loss.

How To Making Money In Retirement: 3 Real Keys

Don’t let the word “indexed” fool you. Your funds are never actually in the market. They are in an account that mirrors only the growth of the market, which is then credited to your principal every year. However, if the market goes down, your money is protected from loss. The rate of return is called your participation rate; it’s the rate that you, the policy owner, get to keep as growth is credited to your account. You are trading a participation rate for never having a loss in the market. Some fixed indexed annuities have participation rates of over 100%.

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How To Making Money In Retirement: 3 Real Keys

Here are two hypothetical examples of how a fixed indexed annuity tied to the S&P 500 could work.

Example 1: If your participation rate was 85% and the S&P 500 went up 10%, your principal would be credited 8.5%.

Example 2: If the S&P 500 went down 40% like in 2008, your account would be safe, and you would lose nothing.

In addition, you can roll over your qualified or nonqualified retirement accounts into a fixed indexed annuity. This is an easy, nontaxable transfer of funds.

How To Making Money In Retirement: 3 Real Keys

When shopping for annuities, make sure you understand the surrender charges involved and any fees on the policy, including rider fees and allocation fees. You will also want to understand how the participation rates and all of the above-mentioned details affect your annuity.

How To Making Money In Retirement: 3 Real Keys

Before making any decision, you’ll also want to research which type of annuity best fits your needs, age and timeline based on your specific situation. Annuities are complex, so make sure you have a financial or insurance professional go through all the details, pros and cons based on your specific needs for safety, growth and income.

These vehicles are provided by insurance companies, so make sure you go with a company that has an A+ to B+ rating and has all the benefits and features you are looking for.

How To Making Money In Retirement: 3 Real Keys

By understanding “the power of zero,” you can see there is a new way of thinking about retirement that makes mathematical sense. It’s a way to grow your retirement without the risk of principal loss.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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